Livestock Greenhouse Gas Emission and Impact of Economic Policies

Running head: ECONOMICS
Research essay on Livestock Greenhouse Gas Emission and Impact of Economic Policies
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1ECONOMICS
Section 1
Contribution of livestock in greenhouse gas emission
It is a surprising fact that livestock produce more greenhouse gases than driving cars. As per a
report by the Food and Agriculture Organization of the United Nations (Fao.org, 2017), it has been found
that the livestock sector produces more greenhouse gas emissions 18% more than the transport sector.
Hence, they have marked the livestock sector as a major threat to the environment. Herrero (2018) also
highlighted in his report in The Conversation that livestock farming contributes around 6 billion tonnes of
the greenhouse gases in the environment every year. It is a very concerning issue as the greenhouse
gases, that is, carbon dioxide, nitrous oxide and methane, are hugely responsible for global warming.
Apart from energy sector, industries and transport sector, the livestock sector has also entered into the list
of sources that emit the harmful greenhouse gases to the atmosphere (Gerber et al., 2013).
In Australia, the direct greenhouse gas emissions from the livestock sector accounts for almost
70% of the total emissions from agricultural sector, and 11% of the total emission of the nation (). Thus,
the livestock sector holds the third position among the largest source of greenhouse gases in Australia,
following the energy and transport sector. This sector produces 56% methane (CH4) and 73% nitrous
oxide (N2O) of the total emissions of Australia (Agric.wa.gov.au., 2017). On the other hand, according to
FAO (2017), the global emission of greenhouse gases from the livestock was about 6.53 gigatonnes of
carbon di-oxide (CO2) per year for 2005 reference period. This was about 15.5% of all anthropogenic
GHG emission, which was around 42 gigatonnes in total for the same period. The transport sector in
comparison produced 6.45 gigatonnes of CO2 equivalent. However, the emission of nitrous oxide is far
more than that of CO2 emission from the livestock. It accounts for almost 30% of the total emissions by
the livestock (knoema.com, 2018).
Section 2
Externality analysis and impact on efficient market equilibrium
Economic efficiency or efficient market equilibrium refers to a situation in the market, in which it is
impossible to make one person better off without making another worse off (Jarrow & Larsson, 2012). In
terms of production of goods and services, it can be said that, a market becomes efficient only when the
optimal level of goods and services are produced with a given amount of resources, and no extra unit of
output can be produced without increasing the units of inputs (Stiglitz & Rosengard, 2015). Thus, in
efficient market, optimal allocation of resources happens.
However, there are few obstacles, which prevent the markets from achieving efficiency and
externalities are one of them. Externalities are the benefits and costs, not borne by the person or
organization conducting the economic activity, and are granted to or imposed on others in the society
(Rezai, Foley & Taylor, 2016). There are positive and negative externalities. The greenhouse gas
emission is a negative externality, as it is created from economic activities and contributes largely in
global warming, which is not good for the society and the environment. The cost to the society in this case

2ECONOMICS
PMC
SMC
PMB = SMB
Price,
MCs,
MBs
Q1 Q* Quantity
Deadweight loss
P1
P*
Negative externality
per unit
E*
E1 A
is greater than to the individual customer. As marginal cost is higher than the marginal benefit,
deadweight loss of social welfare is generated (Lin, 2014).
Figure 1: Negative externalities of production: Greenhouse gas emission by livestock
(Source: Author)
In the figure, E* is the market equilibrium and E1 is the efficient market equilibrium. The
difference between private and social marginal cost is the negative externality per unit of GHG emitted by
livestock. GHG emissions incurs greater cost to the society than to the individuals or the firm breeding
livestock, and at the production point, marginal benefit (PMB = SMB) is less than social marginal cost
(SMC). Hence, deadweight loss is shown by the triangle, AE*E1, and it occurred as social marginal cost
is greater than the social marginal benefit (SMC > SMB).
Section 3
Analysis of policies to reduce GHG emissions from the livestock
As stated by Herrerro (2016), with the application of technology and management, the GHG
emissions from the livestock could be reduced by 2.4 billion tonnes. There are some policies by the
government, which were introduced to reduce the livestock emissions, such as, methane tax on
producers, non price policy on producers and introducing new technology, and increased consumption of
substitute of livestock meat. All these are designed to shift the economy towards an economically efficient
market equilibrium.